BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
HOA Board and Committee Membership Issues
Q: I live in a condominium building and have been asked to be on the Board of Directors. I think this is an honor and will give me visibility with the homeowners. I have listed and sold several units in the HOA and have a good reputation with the homeowners and this would likely help my brokerage business. But I am also concerned that I will learn many things that the average homeowner will not know and then will have to disclose that information. What should I do?
A: You are right to have concerns. As a member of the Board of Directors, or even as a member of a committee of the HOA, you will be presented with much information about the association and the buildings.
For example, if you are a member of the Board, you will have detailed information regarding finances, problems with the property such as leaks, upcoming repairs, crime in the area, and financial information or issues.
As a committee member you will also be exposed to more information than the average member of the Association. For example, if you are on a Landscaping Committee, you may learn that the trees are dying and it will cost thousands to remove and replace them, requiring an assessment in the future.
Most of this is non-confidential and must be fully disclosed to buyers in transactions in which you are involved whether you represented the buyers or not.
However, the most troublesome issue relates to information that you may receive that is confidential in nature, such as from the attorneys for the HOA.
Assume that you are a Board member and in an executive (closed) session of the Board the attorneys retained by the HOA present a preliminary but detailed report of defects and damages to the property, and the costs of repair, because of alleged construction defects, and are proposing a lawsuit against the builder. The report is marked “Attorney-Client Privileged Communication. Do not share with third parties.” The Board will be discussing this in detail in the coming weeks in closed confidential meetings with the attorneys prior to announcing whether they will be pursuing litigation against the builder. If the HOA decides to proceed with a lawsuit, there would have to be an assessment of each owner to pay for the costs of the lawsuit.
Or, you receive a confidential report from the accountants for the HOA that there are severe financial problems because of under-funded reserves and that contemplated expensive repairs to the structures will necessitate a large per-unit assessment. But, this is a confidential preliminary report for the Board to further investigate before the decision is made publicly.
But, in each of the above scenarios you are representing a buyer who is about to remove the HOA document contingency and close. What do you do?
You would be torn between the obligation on one hand to maintain confidentiality of the information provided to you as a result of your Board or committee position; and on the other hand your duty to disclose all material facts to buyers whether represented by you or another agent in your transaction as a listing agent.
PRACTICE TIPS
1. Before you agree to be, or continue to be, on the Board of Directors or committee of an HOA, where as a result you might be in a position to receive confidential information which might put you in a potential conflict situation, you should consider whether the benefits of participating in the running of the HOA are worth the risk of being in the middle of conflicted duties. Discuss concerns with your broker or manager. Many agents choose not to participate in HOA leadership positions for just this reason.
2. If you are on a Board or committee of a HOA and are about to receive confidential information which could the affect value or desirability of units for sale, and which information you suspect buyers would want to know in pending or upcoming sale transactions in which you are involved, explore whether you can recuse yourself from those sessions so as not to be placed in a situation of conflicted obligations.
3. As a Board or committee member of a HOA you should be careful to fully and thoroughly disclose to buyers in transactions in which you are involved all non-confidential material information of which you are aware because of your involvement on the Board or committee which would materially affect the value or desirability of the property.
4. Regarding confidential information which you have learned because of your position with the HOA, if you are in such a conflicted situation regarding disclosure, immediately discuss it with your broker or manager who will likely engage your brokerage attorneys to counsel on the best course.
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.